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How best to secure an education institution’s investment in development rights in the UAE?

When schools or universities are looking to operate in the United Arab Emirates, one of the basic considerations that must be taken into account is the form of real estate ownership that the institution can hold. Land tenure in the United Arab Emirates can be a complex issue and, by comparison with many jurisdictions, is relatively restrictive, being generally based on nationality and its impact on land tenure.

This article will look at one of the forms of real estate ownership most commonly used by schools or universities, the musataha, and some of the steps that should be taken to better protect the institution when investing in the UAE by way of a musataha interest.

What is a musataha

A musataha is a right to occupy property coupled with a right to build. Internationally, it is comparable with a development lease, combined with a long term right to occupy.

A right of musataha arises in the UAE by virtue of the Civil Code. Individual Emirates can, and have, passed real estate specific laws governing their own Emirate which further legislate on musatahas, with Abu Dhabi's Law No 3 of 2015 (Concerning the Regulation of Real Estate Sector) being an example.

Due diligence

The institution should undertake due diligence both on the proposed site and the supporting infrastructure. In particular, attention should be paid as to the delivery of the required utilities to the proposed plots.

The title to the site should be investigated and confirmation should be sought from the owner that they have not granted title to another third party or granted security over the relevant real estate interest.

Further, master communities will often have management rules binding on all owners and occupiers within the master community, which the institution must comply with. As such, these rules should be carefully reviewed to ensure awareness of the requirements and that they do not infringe or impede plans for construction and building. These may include imposition of deadlines for commencement of construction and delivery of completion, restrictions on assignment, approval of contractors, etc.

The Musataha agreement

The musataha will often provide that the building will be owned by the musataha holder (ie the school or university) throughout the term. Subject to the parties agreeing to the contrary, some of the essential features of a musataha are that:

The musataha interest is limited to a term of fifty years that may be renewed for up to the same term by agreement of the parties

The holder of a musataha for a period greater than ten years may dispose of that right without the permission of the owner. This includes an entitlement to mortgage the right

An owner granting a musataha (often a master developer) for a period greater than ten years may not mortgage the underlying property without the permission of the musataha holder

Subject to registration, the musataha rights are greater than purely contractual rights

Development through musataha is a common form of development right granted in the United Arab Emirates. Where ownership of the land itself is restricted to UAE nationals (or GCC nationals), it is commonly one of the only ways non-UAE citizens and entities may undertake development works of the type contemplated.

Title Registration

The basis of obtaining a right in real property in most developed jurisdictions is effected by procuring registration of that right in a register maintained by a designated government body. In the case of Abu Dhabi, that body is the Department of Municipal Affairs (DMA) which oversees Abu Dhabi Municipality, Al Ain Municipality and the Western Region Municipality. In the case of Dubai, that body is the Dubai Land Department.

Registration of the musataha agreement is necessary in obtaining the relevant protection of title. It would be advisable (if commercially possible) to make registration in the name of the school or university a condition precedent of any transaction. Prior to this, as part of the diligence process, the school or university would need to establish with the owner its position with respect to issuing title documentation and the authorities' position in relation to the development.

Without the benefit of registration, a musataha may be deemed ineffective against the claims of third parties. However, the transfer or grant should still be recognised as a contractual bargain between the two transacting parties, however, this will ultimately depend on the Emirate in question and the circumstances of the transaction.